Companies Act Section 206 — Power to call for information, inspect books and conduct inquiries
CHAPTER XIV INSPECTION, INQUIRY AND INVESTIGATION
Commercial / Corporate
Summary
Sub-section (1) allows the Registrar of Companies, after looking at any document filed by a company or receiving any information about it, to decide that more details are needed. If so, the Registrar can send a written notice to the company asking it either to provide the information or explanation in writing, or to produce the required documents, within a reasonable time specified in the notice.
Sub-section (2) makes it the duty of the company and its concerned officers to provide the requested information or explanation to the best of their knowledge and ability, and to produce the documents to the Registrar within the time given or extended. If the information relates to a past period, former officers who worked for the company during that period must also provide the information if the Registrar serves them a written notice asking for it.
Sub-section (3) states that if the company does not furnish the information or explanation within the specified time, or if the Registrar finds the information or explanation inadequate, or if the documents show an unsatisfactory state of affairs that does not give a full and fair picture, the Registrar can issue another written notice. This notice can require the company to produce further books of account, papers, and explanations for inspection at a place and time specified. Before issuing this notice, the Registrar must record the reasons for doing so in writing.
Sub-section (4) allows the Registrar to act if satisfied, based on available information or a representation from any person, that the company's business is being run for a fraudulent or unlawful purpose, or not in compliance with the Act, or if investor grievances are not being addressed. In such cases, the Registrar must first inform the company of the allegations in a written order, then call on the company to furnish information or explanation on the matters in the order within a specified time, and carry out an inquiry after giving the company a reasonable opportunity to be heard. The Central Government may direct the Registrar or an appointed inspector to conduct this inquiry if circumstances warrant. Also, if the business has been or is being carried on for a fraudulent or unlawful purpose, every officer of the company who is in default is punishable for fraud as provided in section 447.
Sub-section (5) states that, without affecting the earlier provisions, the Central Government may direct the inspection of a company's books and papers by an inspector it appoints, if satisfied that circumstances warrant it.
Sub-section (6) allows the Central Government, based on the circumstances, to authorise any statutory authority by a general or special order to carry out the inspection of the books of account of a company or a class of companies.
Sub-section (7) provides that if a company fails to furnish any information or explanation or produce any document required under this section, the company and every officer who is in default will be punishable with a fine of up to one lakh rupees. If the failure continues, there is an additional fine of up to five hundred rupees for each day after the first day during which the failure continues.
Official Text
(1) Where on a scrutiny of any document filed by a company or on any information received by him, the Registrar is of the opinion that any further information or explanation or any further documents relating to the company is necessary, he may by a written notice require the company—
(a) to furnish in writing such information or explanation; or
(b) to produce such documents, within such reasonable time, as may be specified in the notice.
(2) On the receipt of a notice under sub-section (1), it shall be the duty of the company and of its officers concerned to furnish such information or explanation to the best of their knowledge and power and to produce the documents to the Registrar within the time specified or extended by the Registrar:
Provided that where such information or explanation relates to any past period, the officers who had been in the employment of the company for such period, if so called upon by the Registrar through a notice served on them in writing, shall also furnish such information or explanation to the best of their knowledge.
(3) If no information or explanation is furnished to the Registrar within the time specified under sub-section (1) or if the Registrar on an examination of the documents furnished is of the opinion that the information or explanation furnished is in adequate or if the Registrar is satisfied on a scrutiny of the documents furnished that an unsatisfactory state of affairs exists in the company and does not disclose a full and fair statement of the information required, he may, by another written notice, call on the company to produce for his inspection such further books of account, books, papers and explanations as he may require at such place and at such time as he may specify in the notice:
Provided that before any notice is served under this sub-section, the Registrar shall record his reasons in writing for issuing such notice.
(4) If the Registrar is satisfied on the basis of information available with or furnished to him or on a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of this Act or if the grievances of investors are not being addressed, the Registrar may, after informing the company of the allegations made against it by a written order, call on the company to furnish in writing any information or explanation on matters specified in the order within such time as he may specify therein and carry out such inquiry as he deems fit after providing the company a reasonable opportunity of being heard:
Provided that the Central Government may, if it is satisfied that the circumstances so warrant, direct the Registrar or an inspector appointed by it for the purpose to carry out the inquiry under this sub-section:
Provided further that where business of a company has been or is being carried on for a fraudulent or unlawful purpose, every officer of the company who is in default shall be punishable for fraud in the manner as provided in section 447.
(5) Without prejudice to the foregoing provisions of this section, the Central Government may, if it is satisfied that the circumstances so warrant, direct inspection of books and papers of a company by an inspector appointed by it for the purpose.
(6) The Central Government may, having regard to the circumstances by general or special order, authorise any statutory authority to carry out the inspection of books of account of a company or class of companies.
(7) If a company fails to furnish any information or explanation or produce any document required under this section, the company and every officer of the company, who is in default shall be punishable with a fine which may extend to one lakh rupees and in the case of a continuing failure, with an additional fine which may extend to five hundred rupees for everyday after the first during which the failure continues.